Corporate Financial Decision Making for Value Creation

Corporate Financial Decision Making for Value Creation Answer. In this post you will get Quiz Answer Of Corporate Financial Decision Making for Value Creation

 

Corporate Financial Decision Making for Value Creation

Offered By ”The University of Melbourne”

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Week 1 graded quiz – This quiz contributes 10% towards your final grade

 

1.
Question 1
Which of the following is closest to the present value of $500,000 expected in 1 years’ time, assuming a discount rate of 15% p.a.?

1 point

  • $400,000
  • $434,783
  • $500,000
  • $454,545

2.
Question 2
Assuming everything else is constant, when we increase the time period between now and when we receive a cash flow, the present value becomes smaller. Is this true or false?

1 point

  • True
  • False

3.
Question 3
What is an independent project?

1 point

  • A project where the acceptance of one impacts upon the acceptability of other projects
  • A project where the acceptance of one does not impact upon acceptability of other projects
  • The only project the company can take on in its lifetime
  • A project which no other company has undertaken before

4.
Question 4
The decision rule in NPV analysis changes depending on whether we have mutually exclusive projects or independent projects. Is this statement true or false?

1 point

  • True
  • False

5.
Question 5
When dealing with mutually exclusive projects, NPV analysis and IRR analysis do not always lead to the same investment decision.

1 point

  • True
  • False

6.
Question 6
Which of the following does not represent a shortcoming of IRR analysis?

1 point

  • Some projects do not have an IRR
  • Some projects have multiple IRRs
  • It never results in the optimal decision
  • It may give conflicting answers when compared to NPV for mutually exclusive projects.

7.
Question 7
When utilizing the payback period method, the decision rule between independent projects and mutually exclusive projects is different. What is the main difference between the two methods?

1 point

  • Independent project method involves us choosing the project with the shortest payback period
  • Mutually exclusive project method involves us choosing the project with the shortest payback period
  • Mutually exclusive project method involves us choosing the project with the shortest payback period provided that the payback period is shorter than the maximum allowable period
  • Independent project method involves us choosing the project with the shortest payback period provided that the payback period is shorter than the maximum allowable period

8.
Question 8
Which of the following is true?

1 point

  • Payback period does not take into account cash flows after the initial investment is recouped
  • Payback period takes into account cash flows after the investment is recouped
  • Payback period always results in the same decision as NPV analysis
  • Payback period technique and IRR analysis always result in the same outcome

9.
Question 9
Sensitivity analysis is designed to provide information to management beyond the simple “Accept” or “Reject” decision. How can sensitivity analysis assist management?

1 point

  • It allows management to determine the outcome of variables in the future
  • It can assist management in knowing which variables they should monitor upon commencement of the project
  • It allows management to estimate the wealth created today if we go ahead with a project
  • It allows management to remove variables that are not sensitive to wealth

10.
Question 10
In order to compare pessimistic and optimistic forecasts for any given variable, we do not need to set the estimated probabilities of each state equal to each other.

1 point

  • True
  • False

 

 

Week 2 graded quiz

 

1.
Question 1
For a firm to achieve a total valuation of equity of $20bn during an IPO, it would need to sell $20bn worth of stock to the public market.

1 point

True

False

2.
Question 2
A firm looking to undertake an IPO will hire an investment bank (or syndicate of banks) to manage the float process. Which of the following activities are not offered by investment banks as part of the float process:

1 point

Creating the prospectus of the firm planning to undertake the IPO

Providing underwriting services to guarantee that all issued shares will be sold

Organize and conduct marketing roadshows to encourage investor interest

None – all of these activities are handled by investment banks

3.
Question 3
If an IPO is considered to have been underpriced by 35%, and the subscription price was $50, which of the following is closest to the value that the shares closed at after the first day of trading?

1 point

$50

$67.5

$37

$85

4.
Question 4
Firms will often seek to slightly underprice an IPO for signaling as part of a longer term strategy. Which of the following statements best describes this idea:

1 point

Underpricing causes the share price to increase steadily to ‘fair value’ over the longer term

Underpricing is never good for a long term strategy, and it is only through mistakes on pricing an issue that it occurs

Underpricing means that by ‘leaving money on the table’ you are able in future capital raising to collect back this ‘left money’ through debt issues

Underpricing causes investors to see an immediate gain which leaves a ‘good taste’, allowing you to go back to the market to raise more capital with confidence

5.
Question 5
Consider a firm that has 200,000 shares on issue, each trading at 45 cents per share. The firm also has $90,000 of debt with an interest cost of 10% p.a. If the firm reports an operating profit of $30,000, which of the following is closest to the Net Income reportable for the firm and the firm’s ROE?

(Assume a corporate tax rate of 30%)

1 point

$14,700 and 16.33%

$14,700 and 33.33%

$21,000 and 16.33%

$21,000 and 33.33%

6.
Question 6
When a firm enters into financial distress, it faces both indirect and direct costs. Which of the following costs is an example of a direct cost:

1 point

Fees paid to lawyers to manage filings in association with distress

Loss of customers who lose faith in the firm

Missing out on investing in an NPV positive project as funds and time are tied up dealing with financial distress

Managerial time lost spent dealing with financial distress rather than key operations of the firm

7.
Question 7
If the trade-off theory of capital structure holds, which of the following industries would you expect a typical firm to use the lowest level of gearing (financial leverage)?

1 point

On-line retail

Utilities

Farming / Agriculture

Food Processing

8.
Question 8
Equity issuances can be considered to send a negative signal to the market, as it implies that the firm’s equity is undervalued – with management trying to cash in on this opportunistically.

1 point

True

False

9.
Question 9
Dividend payout policy is often considered “sticky”. This is because management is often concerned about decreasing dividends as it sends a negative signal to the market about earning expectations, with this in mind, increasing dividends is carefully considered so as to avoid any future instances of needing to decrease dividends in the face of declining earnings.

1 point

True

False

10.
Question 10
Firms may often target a lower dividend payout policy plan in order to combat agency problems from managers.

1 point

True

False

 

 

Week 3 graded quiz

 

1.
Question 1
If H&M (retail clothing company) were to undertake an acquisition of a smaller company it usually uses to outsource production (eg: An apparel production company), this acquisition would fall into which of the following categories?

1 point

Horizontal Acquisition

Inverse Acquisition

Conglomerate Acquisition

Vertical Acquisition

2.
Question 2
Which of the following is closest to the aggregate takeover premium (in dollars) included in the acquisition consideration of the following deal. Firm A, who has 860,000 shares outstanding at $12/share offers a cash consideration of $1,430,000 for Firm B, who has 150,000 shares outstanding at $9/share?

1 point

$80,000 (a premium of 5.9%)

$80,000 (a premium of 0.78%)

$1,430,000 (a premium of 5.9%)

$1,430,000 (a premium of 13.86%)

3.
Question 3
Consider the following example of a deal with 2 companies, ABC and XYZ, with share prices $45 and $25, and shares on issue of 130,000 and 65,000 respectively. Consider the availability of $325,000 of synergistic benefits associated with a merger.

If ABC were to make a cash offer which of the following is closest to the maximum price they would be willing to pay per share to XYZ (that is – the point at which ABC become indifferent to the deal)?

1 point

$25

$27

$30

$45

4.
Question 4
Consider the following example of a deal with 2 companies, ABC and XYZ, with share prices $45 and $25, and shares on issue of 130,000 and 65,000 respectively. Consider the availability of $325,000 of synergistic benefits associated with a merger.

If ABC were to make a scrip based offer of 2 ABC shares for every 5 XYZ shares, which of the following is closest to the number of shares in the acquiring entity that would exist after the deal concluded?

1 point

130,000

156,000

195,000

65,000

5.
Question 5
EPS Bootstrapping is when a firm is able to increase its EPS through an acquisition. Which of the following scenarios allows for this to occur?

1 point

A lower growth firm (lower P/E Ratio) acquires a higher growth firm (a higher P/E ratio)

A lower growth firm (higher P/E Ratio) acquires a higher growth firm (a lower P/E ratio)

A higher growth firm (higher P/E Ratio) acquires a lower growth firm (a lower P/E Ratio)

A higher growth firm (lower P/E Ratio) acquires a lower growth firm (a higher P/E Ratio)

6.
Question 6
Which of the following reasons for M&A activity is recognized as a sometimes questionable reason for M&A activity?

1 point

Easy access to reshuffle management and potentially remove inefficient managers

Accessing synergies available through combining the two entities

Legally improving market power through combining the entities

Diversifying the company’s operations

7.
Question 7
Which of the following is not a common reason for corporate restructuring activity?

1 point

Unlock the diversification discount

Provide sharper focus to management

Provide for growth through investment in internally generated project proposals

Correct strategic mistakes of management

8.
Question 8
When a firm establishes one of its existing operating units as a separate listed entity and distributes shares in that entity on a pro-rata basis to existing shareholders, this is commonly known as a:

1 point

Equity private placement

Divestiture

Spin-off

Equity carve-out

9.
Question 9
According to evidence presented in the lecture, which of the following is the main source of synergies arising from merger activity cited by firms?

1 point

Financial economies – lowering transaction / tax costs

Operating economies – improved productivity / cost cutting

Increased managerial efficiency

Increased market power (through decreasing competition)

10.
Question 10
Merger activity financed with stock tends to see better longer-term outcomes for the acquiring firm’s share performance compared to those financed with only cash

1 point

True

False

 

 

Week 4 graded quiz

1.
Question 1
Which of the following statements is true?

1 point

A short position in a forward contract hedges a short position in the spot market

A long position in a forward contract hedges a long position in the spot market.

A long position in a forward contract hedges a short position in the spot market.

None of the above statements are true

2.
Question 2
A key difference between forward contracts and futures contracts is that futures contracts are standardized contracts that are traded on an exchange. Is this statement true or false?

1 point

True

False

3.
Question 3
A key downside of forward/futures contract is that regardless of whether the market (spot) price moves in your favour or the counter party’s favour, you will still have to fulfill the contract. This is not a shortcoming of options. Is this statement true or false?

1 point

True

False

4.
Question 4
In order to calculate the payoff and the intrinsic value of a call option, we use the rule Max (P – X, 0). P equals the spot price and X is the exercise price. However, there is a key difference between the intrinsic value and the payoff. Which of the following statements is true with respect to a European-style option?

1 point

Payoff is calculated by using the average spot price of the underlying asset over the option life and the intrinsic value is calculated by using the spot price at expiry

Payoff is calculated by using the current spot price and the intrinsic value is calculated by using the spot price at expiry

Payoff is calculated by using the average spot price of the underlying asset over the option life and the intrinsic value is calculated by using the current spot price

Payoff is calculated by using the spot price at expiry and the intrinsic value is calculated by using the current spot price

5.
Question 5
Which of the following statements is false?

1 point

The interest rate and the value of a call option value are positively related

The value of the underlying asset is always above the exercise price of the option

The exercise price and the value of a put option value are positively related

The dividends of the underlying asset and the value of a call option are negatively related

6.
Question 6
When an asset goes “ex-dividend” the asset’s value increases by the dividend amount. This increases the intrinsic value of a call option. Is this statement true or false?

1 point

True

False

7.
Question 7
An investor concerned about falling interest rates wants to set up a collar that guarantees a minimum investment rate of return. How would she go about this?

1 point

Buy a cap and sell a floor

Buy a floor and sell a floor at a different rate

Sell a cap and buy a floor

Buy a cap and buy a floor

8.
Question 8
A floor position can be created by holding the underlying asset and buying a call option on the asset. Is this statement true or false?

1 point

True

False

9.
Question 9
Reduction in volatility of taxable income can lower the expected taxes for some firms. However, there is a key assumption regarding taxes. What is this key assumption?

1 point

The tax structure must be linear in nature

The tax structure must be non-linear in nature

The company must have a significant amount of tax concessions

The company must be paying a significant amount of taxes

10.
Question 10
Flights r us and Gulf Airways are identical companies except for one aspect, Gulf Airways have hedged their exposure to jet fuel prices whereas Flights r us has not. What will be the effect of the cost of financing on these companies?

1 point

Gulf Airways will more likely have to access more costly external capital markets if there is a adverse change in the price of jet fuel

Flights r us and Gulf Airways are likely to have access to the same external capital markets regardless of whether business conditions change or not

Flights r us will more likely have to access more costly external capital markets if there is a adverse change in the price of jet fuel

Hedging requires the purchase of expensive options and therefore this will reduce the profitability of Gulf Airways making them a more risky borrower. They will have to access more costly external capital markets as a result of being less profitable

 

 

Course Final Exam

 

1.
Question 1
Which of the following is closest to the present value of $500,000 expected in 2 years’ time, assuming a discount rate of 15% p.a.?

1 point

$500,000

$402,598

$434,783

$378,072

2.
Question 2
Bob has two options. Option 1 is to receive $800,000 in 2 year’s time. Option 2 is to receive $661,157 now. Assuming a discount rate of 15% per annum which option should Bob choose?

1 point

Option 1

Option 2

3.
Question 3
XYZ Ltd has a piece of land next to the University of Melbourne. They can either build a hospital or a shopping mall on the land – but they can’t do both. What kind of projects are these?

1 point

Independent projects

Mutually exclusive projects

4.
Question 4
A student society at the University of Melbourne has an investment opportunity. The investment opportunity is an on-campus café. The initial outlay is $500,000. The projected cash flows for years 1,2 and 3 is $200,000 per annum. After the third year, the café will need to be shutdown due to the lease expiring (assume lease cost is included in the projected cash flows). Which of the following is closest to the the NPV of this project given a 10% per annum discount rate?

1 point

$500,000

-$2630

-$3948

$0

5.
Question 5
Which of the following is true when there are conflicting rankings for mutually exclusive projects?

1 point

The NPV (Y-Axis) and discount rate (X-axis) graph show a line intersection between the two projects

One project is always better than the other

The NPV (Y-Axis) and discount rate (X-axis) graph show a line intersection on the y axis between the two projects

The NPV (Y-Axis) and discount rate (X-axis) graph do not show a line intersection between the two projects

6.
Question 6
When there are projects with two IRRs we find that the graph (where NPV is y-axis and discount rate is x-axis) may be:

1 point

A straight line

A line with a turning point

Straight line with two x axis intersections

A horizontal line

7.
Question 7
The payback period technique for project evaluation has its shortcomings. Which of the following is a key shortcoming?

1 point

There is a natural bias against projects with longer developmental lives

There is a natural bias against projects with shorter developmental lives

There is a natural bias towards projects with high NPVs

There is a natural bias towards projects with low IRRs

8.
Question 8
The denominator of the accounting rate return is the (average) capital investment in project. This can be measured in two ways. Which of the following represent these two ways?

1 point

Net assets or market value

Market value or average book value

Market value or amortized value

Historical cost or average book value

9.
Question 9
Discount cash flow (DCF) techniques are a popular way for CFOs to decide between competing projects. Why is this method so popular?

1 point

DCF techniques aim to measure value creation

DCF techniques aim to measure profitability

DCF techniques do not require assumptions

A DCF model is likely to be identical from analyst to analyst

10.
Question 10
You have undertaken a logically consistent sensitivity analysis and found that the range in NPVs for Sales Volume, Sales Price and Variable Costs are $100,000, $200,000 and $50,000 respectively. On the basis of this analysis – which of the three variables will you devote more time to once the project commences?

1 point

Sales Volume

Sales Price

Variable Costs

Unable to say – we need to know the probabilities used to estimate the NPV ranges

11.
Question 11
Which of the following is closest to the total firm valuation of company XYZ who has just completed an initial public offering (IPO), selling 15% of the firm at $450m:

1 point

$3bn

$450m

$1.5bn

Not enough information has been given to determine a firm total valuation

12.
Question 12
Which of the following options is closest to the amount of money considered to be “left on the table” for a firm that conducts an IPO at a subscription price of $18 per share, with 100% of the ownership being sold (100,000 shares) which trades at $20 per share after listing?

1 point

$2,000,000

$200,000

$100,000

$1,800,000

13.
Question 13
Investments banks are both incentivized to overprice an IPO as it can reduce their own marketing costs, and incentivized to underprice an IPO as it can be used to develop relationships with other potential clients through generating positive returns (even though this practice of IPO spinning is illegal in many jurisdictions).

1 point

True

False

14.
Question 14
An often-discussed negative to IPO underpricing is the impact of ownership dispersion. Because of a higher underpricing there is inherently more interest by more investors, this disperses the ownership base and makes it far more difficult for investors to buy and sell the stock and for managers to run the firm.

1 point

True

False

15.
Question 15
A firm with debt (taking on a leveraged position) is in a stronger financial position compared to a non-levered firm as it will always result in a higher ROE in all states of the world.

1 point

True

False

16.
Question 16
Which of the following statements is the most complete description of the implications of the trade-off theory of capital structure?

1 point

There is theoretically an optimal capital structure for firms, as firms seek to balance the present value of the interest tax shield and the costs of financial distress associated with debt.

The Market Value of a firm is equal to the value of an unlevered firm, plus the present value of the interest tax shield associated with the debt level

There is one, consistent, optimal capital structure for all firms, currently agreed at around 50% debt/equity

There is no consistent, optimal capital structure for all firms, as the present value of the interest tax shield increases with debt level and thus firms should optimally take on as much debt as possible.

17.
Question 17
Firms that face an inherently higher level of business risk in their operations (more variability in cash flows) are more suitable to taking on higher levels of debt to smooth out this variability of free cash flows through interest payments.

1 point

True

False

18.
Question 18
Which of the following is the correct ordering of capital under pecking order theory (from most preferred, to least preferred):

1 point

Internal Capital > External Debt Capital > External Equity Capital

External Debt Capital > Internal Capital > External Equity Capital

Internal Capital > External Equity Capital > External Debt Capital

External Equity Capital > Internal Capital > External Debt Capital

19.
Question 19
Considering only the impacts of the dividend (all else held equal), on which of the following dates would you expect the share price of the firm to fall, on average, in value as a result of the dividend payment?

1 point

Dividend announcement date

Ex-Dividend date

Dividend payment date

None of these days, paying a dividend is seen as a positive for the firm.

20.
Question 20
A share buyback is the process where a firm uses excess funds to enter the market and repurchase its own shares, this use of excess capital is most similar in outcome to which of the following alternative corporate actions:

1 point

Using the capital to pay bonuses to managers

Dividend payments to shareholders

Investing in new positive NPV projects to grow the firm

Use the capital to make an acquisition of a competitor

21.
Question 21
Which of the following statements best defines the ‘takeover premium’ during an acquisition:

1 point

A bonus paid to current shareholders (above the normal acquisition consideration) during hostile takeover attempts to win shareholder approval

The amount included in the acquisition consideration to shareholders over and above the fair value of equity as reflected in the pre-bid share price

An amount paid to incumbent managers of the target to incentivize them to stay with the firm but pass managerial control to the acquisition firm management

An amount separate to the acquisition consideration paid to incumbent managers of the target firm as a form of severance bonus

22.
Question 22
Company management who believes, on the basis of their “inside information”, their stock is currently trading below fair value (potentially ‘underpriced’ in the market) will favor stock (shares) as a form of consideration in a potential acquisition of a target firm rather than cash.

1 point

True

False

23.
Question 23
Consider the following example of a deal with 2 companies, ABC and XYZ, with share prices $45 and $25, and shares on issue of 130,000 and 65,000 respectively. Consider the availability of $325,000 of synergistic benefits associated with a merger.

If ABC were to make a scrip based offer of 3 ABC shares for every 4 XYZ shares, which of the following is closest to the cost (note: NOT Net Cost) of the transaction?

1 point

$2,193,750

$2,127,273

$2,038,636

$568,750

24.
Question 24
In the case of a merger with a net cost of $300,000 and expected synergies of $450,000; given the acquiring firm has a market value of $2,500,000 and the target a value of $1,000,000; this deal should be entered into as it is NPV positive.

1 point

True

False

25.
Question 25
An always valid justification for M&A activity is to increase EPS (Earnings Per Share) through acquiring a firm with a suitable P/E Ratio, as this generates immediate EPS benefits creating shareholder value.

1 point

True

False

26.
Question 26
Diversification outcomes associated with a merger can sometimes be seen as positive for shareholders as it may give them access to markets they otherwise potentially could not have invested in.

1 point

True

False

27.
Question 27
When a firm establishes one of its existing operating units as a separate listed entity and the shares are immediately sold off to the market and the cash retained by the firm, this is commonly known as:

1 point

Equity private placement

Divestiture

Spin-off

Equity carve out

28.
Question 28
If company XYZ, an office-supply company, announced it was separating off its paper business and selling it to a competitor for $400m, this would be an example of a divestiture.

1 point

True

False

29.
Question 29
The validity of diversification as a justifiable reason for M&A activity is debated, and those who push against its validity often cite the higher, potentially devastating, negative downside potential on heavily diversified firms during economic downturns.

1 point

True

False

30.
Question 30
According to evidence presented in the lecture, which of the following corporate restructuring events tend to generate the highest announcement period returns?

1 point

There is no inherent bias to any of these and all tend to perform similarly

Spin-offs

Divestitures

Equity carve-outs

31.
Question 31
Emirates Airlines has a short position in jet fuel and takes up a forward contract for the delivery of jet fuel in 6 months time. If the market price falls below the forward price Emirates Airlines will be better off than if they had not hedged at all. Is this statement true or false?

1 point

True

False

32.
Question 32
The futures exchange takes on the counterparty risk for all contracts. To protect itself it does two things. It requires an initial deposit and future margin calls by market participants. Which of the following best describes a margin call?

1 point

If the cash account falls below a certain level the exchange requires additional funds to be deposited

A phone call made by the futures exchange to remind companies to pay administration fees.

An initial deposit of cash into an account by every buyer and seller

A situation where the exchange calls participants when there is a reduction in underlying asset price volatility

33.
Question 33
Judy the COO of Kellogg’s wants to put a cap on the price she pays for corn at $11 per bushel in 12 months’ time. Therefore, she buys the right to buy (long call) the corn at a pre-specified price of $11. If price of corn is $8 in 12 months time, which of the following is true?

1 point

She has had to pay the premium for the option and she will exercise the option

She will have received the premium from the option but she will pay the market price for the corn

She will have received the premium from the option and she will exercise the option

She has had to pay the premium for the option but she will pay the market price for the corn

34.
Question 34
There are two put options currently available in the market. They are exactly the same in all aspects but they differ in one particular way. One option is a European-style option and the other is an American-style option. Which of the following statements about the value of the options is most likely to be true?

1 point

The value of both options are the same

The value of the European-style option is greater than the value of the American-style option

The value of the American-style option is at least as great as the value of the European-style option

We need more information to figure out the value of both options

35.
Question 35
The interest rate has an impact on the option value. With regards to a put option, will a reduction in interest rates increase or decrease the value of a put option (all other things remaining equal)?

1 point

Increase

Decrease

36.
Question 36
You hold an American style call option. In which of the following scenarios might you choose to exercise it early?

1 point

Whenever the market price is lower than the exercise price of the option.

Just after a dividend has been issued and the market price is at the ex-dividend price

Just before the dividend so as to avoid the fall in intrinsic value of the option while benefiting from receipt of the dividend

You will never exercise an American-style call option early

37.
Question 37
What would be a key reason why investors/borrowers go to the trouble of creating a collar position when currency hedging?

1 point

Because they are irrational market participants

To mitigate the outright cost of an option position

Risk management

Portfolio diversification

38.
Question 38
Alex sets up an interest rate collar. Alex will be borrowing and therefore the floor is set at 2% p.a and the cap is set at 4% p.a. If the unhedged interest rate paid at collar expiry is equal to 3% p.a, what will be the interest rate paid by Alex (assuming their credit spread is equal to zero)?

1 point

4%

3%

2%

5%

39.
Question 39
According to the trade-off theory of capital structure, what is the main mechanism by which hedging increases the overall value of a firm holding debt on its balance sheet?

1 point

Hedging reduces the probability of financial distress which in turn reduces the present value of financial distress costs

Hedging reduces the costs incurred in distress which in turn reduces the present value of financial distress costs

It increases the value of the company with no debt

Hedging does not impact any of the variables in the capital structure equation

 

 

Peer-graded Assignment: Peer Assessment – This contributes 20% towards your final grade

 

1. Using the data supplied in the above table, what is the NPV of Project A (to the nearest thousand dollars – e.g. If NPV = $40,267 then the answer would be $40,000)?

2000

2. Using the data supplied in the above table, what is the NPV of Project B (to the nearest thousand dollars)?

Your answer needs to be a little bit longer. Write a few sentences to complete your assignment.

3690

3. Looking at only your NPV analysis (and hence not assuming any other constraints are faced by the firm), what is the appropriate investment decision? Briefly explain this decision (maximum 100 words).

​Your answer needs to be a little bit longer. Write a few sentences to complete your assignment.
Part B – Explaining Variation in Debt Levels – 1 question (4 points)

7865

 

4. Critically evaluate this statement (maximum 250 words):

One of the main insights provided by the pecking order theory, as opposed to other theories of capital structure, is that it helps to explain why firms operating in different industries might have very different leverage levels.

​Your answer needs to be a little bit longer. Write a few sentences to complete your assignment.
Part C – Mergers and Acquisitions – 2 questions (3 points each, total 6 points)

Consider the following:

In November 2008 the Belgian-Brazilian company InBev completed its $52 bn acquisition of US firm Anheuser-Busch.

7900

 

 

5. Would you classify this deal as a horizontal, vertical or conglomerate acquisition? Briefly explain why (maximum 100 words).

Your answer needs to be a little bit longer. Write a few sentences to complete your assignment.

2000

6. What control premium did Anheuser-Busch shareholders receive from the deal?

Your answer needs to be a little bit longer. Write a few sentences to complete your assignment.
Part D – Risk Management – 2 questions (2 points each, total 4 points)

Critically evaluate the following statement (maximum 100 words):

1000

 

 

7. The opposite financial outcome to buying the right to buy is buying the right to sell.

Your answer needs to be a little bit longer. Write a few sentences to complete your assignment.
Critically evaluate the following statement (maximum 100 words):

900

 

 

8. Hedging with forward contracts enables a firm to always be better off financially at contract maturity than if it did not hedge.

6000

 

 

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